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NEWS DIGEST
Auditing  
December 2012

  Change apparently is coming to the auditor’s report, but views vary over the appropriate content and structure for reports, and particularly over the issue of “auditor commentary.”

The question of appropriate content and structure for the auditor’s report was the subject of an International Auditing and Assurance Standards Board (IAASB) round-table meeting in New York in September. It was the first of three such meetings as the IAASB sought feedback from investors, auditors, and other interested parties on an Invitation to Comment (ITC) it issued in June on the auditor’s report.

The ITC proposes that additional information in the auditor’s report should be provided as “auditor commentary” to highlight matters that the auditor believes are likely to be most important to users’ understanding of the audited financial statements or the audit. Auditor commentary would be required for public-interest entities, which at a minimum include listed entities, and could be provided at the auditor’s discretion for other entities.

Proposed changes in the ITC include: 

  • A conclusion by the auditor on the appropriateness of management’s use of the going-concern assumption in preparing the financial statements, and an explicit statement about whether material uncertainties related to going concern have been identified.
  • A statement by the auditor identifying whether any material inconsistencies between the audited financial statements and other information have been found based on the auditor’s reading of other information. Specific identification of the information considered by the auditor also would be included.
  • Prominent placement of the auditor’s opinion and other entity-specific information in the auditor’s report.


The ITC also asks whether the auditor’s reports should describe audit procedures, involvement of other auditors, and the auditor’s responsibilities, as well as whether disclosure of the engagement partner’s name should be required. Comments on the ITC were due Oct. 8; the ITC is available at tinyurl.com/cj9lnuv.

The AICPA Auditing Standards Board (ASB) recommended in a comment letter that auditor commentary should be required only in auditor’s reports for financial statements of listed entities. The ASB wrote that auditor commentary would have limited practical relevance for many users of audited financial statements of nonissuers in the United States and therefore should not be required for nonissuers because of cost/impediment considerations.


  Corporate board members charged with oversight of U.S. public companies are opposed to mandatory rotation of external auditors by more than 2-to-1, according to a recent survey.

Mandatory audit firm rotation is a continuing subject of debate in Europe and the United States, where regulators are exploring such a requirement.

Sixty-eight percent of the U.S. public company board members participating in a BDO survey (available at tinyurl.com/9qtdwpv) said they do not favor a requirement for mandatory rotation of external auditors for U.S. public companies.

Among those who opposed audit firm rotation, 78% said they opposed the concept of mandatory tendering, or putting up for bid, of the external audit relationship.

The wide-ranging survey also showed that corporate directors:

  • Support voluntary adoption of IFRS for financial reporting by U.S. public companies.
  • Identify corruption and bribery as the greatest fraud risk for their companies.
  • Say the CEO is the person at their company who is most helpful to the board in assessing and managing risk.


The PCAOB continues to explore the issue of mandatory audit firm rotation for U.S. public companies. The European Parliament has been debating a European Commission proposal that would limit to six years the period that an outside auditing firm would be allowed to perform audits for a public company.

In a comment letter to the PCAOB, the AICPA said mandatory firm rotation carries significant costs and possible unintended consequences that have the potential to hinder audit quality rather than the intended goal of enhancing audit quality. 

Sixty-three percent of respondents said U.S. public companies should be allowed to use IFRS in their public reporting. The SEC staff in July issued a report that examined the issue of IFRS adoption for U.S. public companies, but made no recommendation. The matter is in the hands of the SEC commissioners, with no timetable set.


NEWS DIGEST
Financial planning  
December 2012

U.S. investors’ confidence in domestic capital markets has rebounded, but their faith in markets outside the United States has continued to decline, according to new research by the Center for Audit Quality (CAQ).

Sixty-five percent of investors reported that they have some, quite a bit, or a great deal of confidence in U.S. capital markets in the sixth annual Main Street Investor Survey released by the CAQ, which is affiliated with the AICPA. That is an increase of four percentage points over the previous year.

That percentage had decreased in the 2010 and 2011 surveys; it still significantly trails the 84% who reported confidence in U.S. markets in 2007—before the financial crisis.

“This year’s results suggest that confidence about domestic markets may have stabilized and perhaps even begun to rebound,” CAQ Executive Director Cindy Fornelli wrote in the introduction to the survey report.

In contrast, confidence in capital markets outside the United States fell eight percentage points to 35%. The percentage has dropped each year since 2007, when 65% of investors reported confidence in capital markets abroad.

The survey, available at tinyurl.com/963u5oo, drew responses from 1,003 U.S. adults who live in households with $10,000 or more in investments, including stocks, bonds, mutual funds, IRAs, and 401(k)s.

Investors who indicated little or no confidence in U.S. capital markets most frequently blamed the state of the economy (37%), followed by too much government regulation (25%) and weak government oversight of capital markets (22%).


NEWS DIGEST
Financial reporting  
December 2012

  Adjustments for the time value of money, which have generated some opposition from stakeholders, are likely to remain a part of the converged revenue recognition standard that is being jointly developed by FASB and the International Accounting Standards Board (IASB).

The boards tentatively affirmed a proposal in the 2011 exposure draft regarding the time value of money, according to an update posted on FASB’s site. The proposal states that if a contract with a customer has a significant financing component, the entity should adjust the amount of promised consideration for the effects of the time value of money.

Board decisions are tentative and do not become final until after a formal written ballot. The final revenue recognition standard is scheduled to be released in the first half of 2013.

Inclusion of the time value of money in the revenue recognition standard has met with some opposition from the AICPA and some corporations because of complexity.

In a comment letter, the AICPA Financial Reporting Executive Committee opposed including the time value of money in the standard because, it said, practical challenges and costs would outweigh the benefits to users.

“In evaluating time value of money, an entity would also need to consider how it manages its overall net cash inflows and outflows in an arrangement in order to accurately reflect the time value of money,” the letter said. “This adds even further complexity.”

Comment letters from Boeing, General Motors, and Chrysler also advocated eliminating or modifying the time value of money requirement because of concerns that it has the potential to be misleading and creates operational challenges to implement.


  The IASB will re-expose its proposals for insurance contracts accounting.

Although the project, which has been undertaken jointly with FASB, has been in progress since 2007, the IASB decided that re-exposure for public comment is appropriate because substantial changes—whose effects need to be understood—have been made since the original exposure draft was released for comment earlier this year.

What is being called a “targeted re-exposure” by the board seeks answers to a limited number of questions. The board is limiting the questions to avoid reopening issues that have been decided to its satisfaction.

Questions in the ED will relate to proposed requirements for:

  • Treatment of participating contracts.
  • Presentation of premiums in the statement of comprehensive income.
  • Treatment of the unearned profit in an insurance contract.
  • Presenting, in other comprehensive income, the effect of changes in the discount rate used to measure the insurance contract liability.
  • The approach to transition.


The ED will be made available on the IASB’s website at ifrs.org.

Although FASB and the IASB have worked jointly on the project, they have reached different conclusions about several elements of the model. FASB was scheduled to release an ED on insurance in the fourth quarter.


NEWS DIGEST
Professional issues  
December 2012

  U.S. accounting and finance starting salaries will rise in 2013, according to a recently published salary guide.

Average starting salaries for corporate accounting employees in the United States are projected to increase between 2.7% and 4.5% compared with 2012, depending on the position and the size of the company, according to executive staffing firm Robert Half’s 2013 Salary Guide for Accounting and Finance.

Public accounting average starting salaries are expected to increase 2.6% to 3.6% over last year.

The rise in average starting salaries in financial services has a wider range of 0.6% to 4.0%, with client service representatives and some other operations positions predicted to receive some of the lower increases.

The report describes a complicated job market in finance and accounting. Although firms are experiencing urgency for hiring in order to achieve growth objectives, some businesses are proceeding with caution to avoid overhiring, the report says.

Talent shortages for positions that include financial analysts and senior accountants are being reported, and many recruiters are running into difficulty finding job candidates with the skills they need for the positions that are open, the report says.

The CPA remains the credential most frequently sought and trusted by employers for finance and accounting positions, the report says, and CPAs with experience with a Big Four accounting firm are especially sought after. The Chartered Global Management Accountant (CGMA) designation is also listed among valued certifications.

The guide is available at tinyurl.com/842zpbm.


  A new commission charged with increasing ethnic diversity in the accounting profession held its first quarterly meeting at the AICPA offices in Durham, N.C.

The formation of the National Commission on Diversity & Inclusion reflects a renewed determination within the profession to increase the retention and advancement of under-represented minorities.

Representatives from minority professional advocacy groups, CPA firms, state CPA societies, business and industry, government, and education are included in the commission membership. Ken Bouyer, Americas director of inclusiveness recruiting at Ernst & Young, is the commission’s chair.

The commission’s goal is to help the profession’s diversity better reflect that of the clients and communities CPAs serve.

While minorities make up 20% of professional staff positions at accounting firms, just 6% of partners are ethnically diverse, according to research contained in the AICPA report, 2011 Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits.

“The AICPA has done a tremendous amount of work to make the profession more inclusive, and we will continue to build upon those efforts,” Kim Drumgo, vice chair of the commission and director of diversity and inclusion at the AICPA, said in a statement. “The commission brings together a wide range of stakeholders to address the issue of diversity. This is a critical step toward ensuring the profession’s continued growth and ability to meet the needs of those we serve.”

The commission, which will have 15 members in addition to Bouyer and Drumgo, will work toward proposing strategies to increase the number of minorities in the accounting profession. The commission also will closely monitor the population trends and analyze their impact on the profession and CPAs’ clients.


  CPA mobility efforts met with continued success as California passed mobility legislation and a law took effect that makes it easier for CPAs from other jurisdictions to practice in the District of Columbia.

The California legislation allowing CPAs from outside California to represent clients in the state without being subject to additional license requirements takes effect on July 1, 2013. It will allow out-of-state CPAs to provide many services to their clients without obtaining a license or paying a fee to the California Board of Accountancy (CBA).

In D.C., the Accountant Mobility Act of 2011 took effect Oct. 1 and grants CPAs with valid licenses in U.S. states the ability to practice in the city without obtaining a reciprocal license.

Forty-nine states and the District of Columbia have passed CPA mobility legislation. Efforts continue to achieve cross-border privileges for CPAs under a “no notice, no fee, no escape” regulatory regime in Hawaii, Puerto Rico, Guam, the U.S. Virgin Islands, and the Commonwealth of the Northern Mariana Islands. Since 2007, the AICPA has worked with state CPA societies, the National Association of State Boards of Accountancy, individual state boards of accountancy, AICPA members, and firms in a national effort to update state licensing laws to permit cross-border mobility for CPAs.


NEWS DIGEST
Technology  
December 2012

The number and complexity of cyberattacks, especially those targeting mobile devices, grew at an alarming pace in the second quarter, security technology company McAfee Labs said in its latest Threats Report.  

McAfee identified more than 8 million previously undiscovered samples of malicious software, or malware, during the three months that ended June 30. The number of new malware samples grew by more than 1.5 million from the first quarter to the second quarter.  

With nearly 100,000 new threats identified every day, the total number of unique malware samples tracked by McAfee climbed above the 90 million mark.

“Through forecasting and trending, we knew that 2012 would likely host a greater number of new malware samples than 2011, but the data from Q2 blew us away,” Pat Calhoun, McAfee’s senior vice president and general manager for network security, wrote in a blog entry discussing the latest report.

Hackers continued to produce malware for mobile devices at a rapid clip. The number of unique mobile malware samples soared from fewer than 2,000 in 2011 to more than 12,000 in 2012. Google’s Android operating system is the primary target. Nearly all the newly discovered mobile malware in the second quarter was written for Android.

The full report is available at tinyurl.com/8qxfmrn.


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